- 10 Marks
Question
Mawulolo Enterprise is a retail business that prepares its accounts on 31 March each year. The business maintains a standard gross profit margin of 30% on sales.
The following financial information was extracted from its records as at 31 March 2024:
| Item | GH¢ |
|---|---|
| Inventory at 1 April 2023 | 254,000 |
| Operating Expenses | 378,000 |
| Finance Cost | 58,000 |
| Purchases | 1,306,000 |
| Sales | 1,900,000 |
| Inventory in good standing at 31 March 2024 | 192,000 |
On 31 March 2024, a fire outbreak in the warehouse destroyed some of the inventory records and goods.
The tax charge for the year is estimated at GH¢30,000.
Required:
i)Calculate the amount of inventory lost.
ii) Prepare the Statement of Profit or Loss for the year ended 31 March 2024
Answer
i) Computation of Inventory Lost Due to Fire
| Description | GH¢ |
|---|---|
| Opening Inventory (1 April 2023) | 254,000 |
| Add: Purchases | 1,306,000 |
| Total Goods Available for Sale | 1,560,000 |
| Less: Closing Inventory (Good Standing) | (192,000) |
| Cost of Sales + Lost Inventory | 1,368,000 |
| Less: Cost of Sales (1,900,000 × 70%) | (1,330,000) |
| Inventory Lost in Fire | 38,000 |
ii) Statement of Profit or Loss for the Year Ended 31 March 2024
| Description | GH¢ | GH¢ |
|---|---|---|
| Revenue (Sales) | 1,900,000 | |
| Less: Cost of Sales | ||
| Opening Inventory | 254,000 | |
| Add: Purchases | 1,306,000 | |
| Less: Closing Inventory | (192,000) | |
| Less: Inventory Lost in Fire | (38,000) | |
| Total Cost of Sales | (1,330,000) | |
| Gross Profit | 570,000 | |
| Less: Operating Expenses | (378,000) | |
| Operating Profit | 192,000 | |
| Less: Finance Cost | (58,000) | |
| Profit Before Tax | 134,000 | |
| Less: Tax | (30,000) | |
| Profit for the Year | 104,000 |
- Tags: Cost of Sales, Financial Adjustments, Fire Loss, Gross Profit, Inventory Valuation, Net Profit
- Level: Level 1
- Uploader: Salamat Hamid